From: The Imperial Palace.
The A.I. seems decent to me, on defense anyway. It doesn't make many obvious boneheaded moves, but then it doesn't have to make many moves at all, as it's playing defense. I'm playing on the second-hardest of the original difficulty levels ("General"), and for my next game I'll choose the hardest ("Field Marshall"), which in turn can unlock three bonus difficulty levels. The biggest challenge for me hasn't been winning, but winning fast enough to earn a Decisive Victory. Sometimes I do, sometimes I don't.
The game is indeed relatively abstract, but combat results generally seem plausible to me. Yes, fighters will generally win air-to-air matchups, but some fighter-bombers hold their own too, as was the case historically.
I think it's great fun, as long as you remember it's beer-and-pretzels, not "Gary Grigsby's War in the East."